2018 IRS Federal Income Tax Brackets Breakdown Example (Single)

The Tax Cuts and Jobs Act (TCJA) changed up the personal income tax brackets, exemptions, and deductions. Here is an updated graphical breakdown of a simple scenario for a single filer with no dependents in Tax Year 2018. I’ll try to illustrate the relationship between gross income, taxable income, marginal tax rate, and effective tax rates. See also my previous post 2018 Income Tax Breakdown (Married w/ 1 Child).

2018 federal income tax rates for single filers. Taken from the official IRS tax tables (source):

The following changes also apply for Tax Year 2018:

• The personal exemption deduction is now gone ($0), from $4,050 in 2017.
• The standard deduction for single taxpayers and married taxpayers filing separately rises to $12,000 from $6,350.
• The standard deduction for married taxpayers filing joint returns rises to $24,000 from $12,700.
• The standard deduction for heads of household rises to $18,000 from $9,350.
• The Child Tax Credit was expanded with higher income phaseout limits and is now worth up to $2,000 per qualifying child.

Let’s say your individual gross income is $60,000 a year. You are single with no dependents, aged 64 and under. You are an employee that receives W-2 income only (i.e. you are not self-employed). You don’t have any additional income sources like interest, capital gains, rents, etc. You don’t have any extra deductions like IRA/401k contributions or mortgage interest. You live in a state with no state income tax. We will ignore any state or local income taxes.

Gross income. Let’s start with your annual $60,000 gross income. There are no personal exemptions anymore. You do get the larger standard deduction which is $12,000 for single filers in 2018. Since you don’t have a lot of itemized deductions, you fall back onto the standard deduction.

The first 12,000 of your gross income is not taxable. Without doing anything special at all, your $60,000 in gross income is now only $48,000 in taxable income after personal exemptions and the standard deductions.

The first $9,525 of taxable income is subject to a 10% tax rate. Shave off 10% of $9,525 and put that on your tax bill ($952.50). The remaining $38,475 of taxable income is moved onto the next tax bracket.

The next $29,175 in taxable income is subject to a 12% tax rate. So we take 12% of $29,175 ($3,501) and add that to the existing $952.50. The tax bill is now $4,453.50. The remaining $9,300 of taxable is moved onto the next tax bracket.

The next $43,800 in taxable income is subject to a 22% tax rate. However, we only have $9,300 left. So we take 22% of $9,300 ($2,046) and add that to the existing $4,454 (let’s round up that dollar). The total tax bill is now $6500.

In this example, this 22% is your marginal tax bracket. If you earned another $1, it would be taxed at this marginal rate of 22%.

Payroll taxes. These aren’t technically federal income taxes, but you must pay a Social Security tax (OASDI) of 6.2% and Medicare payroll tax (HI) of 1.45% of your gross income. That’s $3,720 a year for Social Security and $870 a year for Medicare. (Your employer pays the same amount.)

Overall effective tax rate. You paid $6,500 in federal income taxes on $60,000 of gross income, for an overall effective tax rate of 10.8%. You also paid 7.65% in payroll taxes.

The same single filer in 2017 would have paid $8,139 in federal income taxes on $60,000 of income, for an average or overall effective tax rate of 13.6%.